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Alexion Posts Strong Earnings in Q1

Zacks Equity Research

Alexion Pharmaceuticals’ (ALXN) first-quarter 2014 earnings (including stock-based compensation expense) of $1.41 per share easily beat the Zacks Consensus Estimate of $1.09 per share. Earnings (boosted by 37 cents per share pertaining to the reimbursement of prior year shipments) were above the year-ago figure by 143%. Higher product sales benefited earnings in the first quarter of 2014.  

Alexion’s revenues jumped 67% in the first quarter of 2014 to approximately $566.6 million. We note that all of Alexion revenues are generated from Soliris sales. We also note that the revenue figure in the quarter included $87.8 million recognized from the reimbursement for Soliris sales made before the commencement of this year as per an agreement with the French government last month. Revenues surpassed the Zacks Consensus Estimate of $519 million.

Soliris, the sole marketed product at Alexion, is available in the U.S, EU, Japan and many other countries for the treatment of paroxysmal nocturnal hemoglobinuria (:PNH). PNH is a rare genetic blood disorder. Sales of the drug have been boosted further by its label expansion into the aHUS indication in the U.S. (Sep 2011) and the EU (Nov 2011). Japanese approval for Soliris in the aHUS indication came in Sep 2013.

Operating expenses (excluding stock-based compensation expense and upfront and milestone payments related to license and collaboration deals) climbed approximately 19% to $195.9 million in the first quarter of 2014. The increase was attributable to a rise in research and development (R&D) expenses (up approximately 23%) and selling, general and administrative (SG&A) expenses (up approximately 17%). The increase in R&D expenses was attributable to the company’s efforts to develop its pipeline. SG&A expenses increased due to Alexion’s efforts to expand.

Alexion announced that it has initiated the rolling submission of a Biologics License Application (:BLA) for asfotase alfa in the hypophosphatasia indication. The rolling submission to the U.S. Food and Drug Administration (:FDA) is expected to be completed in the fall of 2014.

Earnings View for 2014 Upped
Alexion increased its guidance for adjusted earnings per share. The company now expects adjusted earnings for 2014 in the range of $4.75–$4.85 per share (old guidance: $4.37 to $4.47). The comprehensive outperformance and the hike in 2014 earnings outlook resulted in the stock gaining in pre-market trading.

Revenues for 2014 are still expected in the range of $2.15 billion–$2.17 billion. The Zacks Consensus Estimate for 2014 hints at earnings of $4.01 per share on revenues of approximately $2.2 billion. The company still expects R&D costs (excluding stock based compensation expense) for 2014 in the range of $360–$380 million. Selling, general and administrative costs (excluding stock based compensation expense) in 2014 are now expected in the range of $550 million–$570 million (old guidance: $560 million - $580 million).

Our Take

Once again, Alexion impressed with strong results. The hike in the 2014 earnings guidance is encouraging. We expect growth at Alexion to be driven by strong Soliris sales in the PNH and aHUS indications.

We are also impressed by Alexion’s efforts to develop its pipeline. Alexion is expecting seven product approvals within the time period of 2014 to 2018 including asfotase alfa, ALXN 1101 and Soliris’ label expansion into indications such as antibody-mediated rejection, neuromyelitis optica and the prevention of delayed graft function in renal transplant patients. This will reduce the company’s dependence on Soliris for growth.

Alexion currently carries a Zacks Rank #2 (Buy). A better-ranked stock in the biopharma sector is Regeneron Pharmaceuticals (REGN), carrying a Zacks Rank #1 (Strong Buy).

We note that another biopharma company Gilead Sciences (GILD) – also a Zacks Rank #2 stock –posted solid first quarter results on Apr 22 after market close. Gilead’s results surpassed expectations by a wide margin with its hepatitis C virus (:HCV) drug, Sovaldi, delivering sales of $2.3 billion in its first full quarter on the market. Bristol-Myers (BMY), another major player in the sector, will report first quarter results on Apr 29, before market opens on that day.

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